By Walker Boyd
In early 2009, the authoritative ratings agency Moody’s assigned an ‘Aa2’ rating to the Albuquerque Bernalillo County Water Authority (ABCWUA). This is good news for the Authority: the high rating ensures low interest rates on any bonds they might issue.
And they have been issued: If the ABCWUA is a house, then it is mortgaged to the hilt: the Authority has about $2000 in debt for each one of its customers.
It is strange to read about the Water Authority from the perspective of national or international bond investors. Instead of water availability, Colorado River flows above El Vado, or average customer use, Moody’s analysts were more concerned about “customer growth” and the effect that slowing construction of new residences might have on the Authority’s short-term growth.
This dovetails with another favorite past-time of financial analysts, real estate speculation. Because tax increases are so unpalatable to Americans, city governments are often hamstrung by their own success. Low taxes attract businesses (for example Intel), but higher taxes to pay for deferred costs like water use and street improvements are politically unpalatable. Speculators can thus count on friendly city managers, willing to do anything to attract business to their own city in order to attract “jobs”. But how does a city with a complete inability to raise taxes or utility rates continue to provide essential services?
Until recently, the solution has been Gross receipts: So long as Albuquerque continues to grow at a healthy pace, property sales and construction give the state a steady flow of income.
Any city manager is thus faced with a unique problem: how do you keep up with increased demands for government services (like better water treatment) without raising taxes? Until now, the solution has been to grow, and when growth has been anemic, issue bonds. Hence the concern with growth that the Moody’s analysts linked above express. Anything less than 2% growth means that Albuquerque becomes a debt basket case in record time.
There is nothing inherently wrong with bonds; the ability to efficiently distribute wealth has been a hallmark of Western society’s growth since the 16th century. Conservative historians argue that the Italian invention of double-entry book keeping and other European innovations in finance and accounting are responsible for the Western world’s higher quality of life. When growth is desirable, bonds can help a city or a country build necessary infrastructure, which they pay for later with a larger, more productive population.
But in a city like Albuquerque which has already seen its fair share of development, bond issues can take on a pernicious role, encouraging growth for its own sake rather than Albuquerque’s general well-being.